WESTFIELD, N.J. — To Johnnie McDowell, the house on Livingston Street seems to taunt him every time he walks by. It’s nothing special: The two-story home is a bit shabby, and it’s been on and off the market in recent months without finding a buyer. Still, he cannot stop dreaming of a better life for his family as he imagines the extra space inside and his children and dog playing outdoors once he weeds the yard.

The McDowell family, however, remains squeezed into a rental apartment: a single floor of an oddly configured duplex that Mr. McDowell has fashioned into three small bedrooms for himself, his wife, Takiba, and two children. With a monthly rent of $1,400, car payments, unpredictable family expenses, a spotty credit report and an empty savings account, Mr. McDowell sees no way to soon pull together a decent down payment.

“My wife and I have been wanting to go on the market to buy a house for years now,” Mr. McDowell, 41, said. “But bills, bills, bills and car notes and car insurance. We haven’t been able to save anything.”

In the past, many families like the McDowells, whose household income is almost $100,000 a year, would already be nestled in a starter home, maybe even on the cusp of upgrading to something bigger and more expensive on the profits from their first house.

But even as the market continues to improve — sales of existing homes in May increased to their highest pace in six years, the National Association of Realtors reported on Monday, and first-timers make up 32 percent of the buyers — it is leaving millions of Americans unwillingly stuck in rental housing.

“It’s more of a new normal,” said Robert J. Shiller, an economics professor at Yale University and a Nobel laureate. “We went through a wrenching experience with the biggest housing bubble and the biggest collapse since 1890. This is an anxious time.”

The nation’s homeownership rate has been falling for eight years, down to 63.7 percent in the first quarter of this year from a peak of over 69 percent in 2004, according to a new report released on Wednesday by Harvard University’s Joint Center for Housing Studies.

The flip side of the decline in homeownership is a boom in rentals and a significant rise in the cost of renting. On average, the number of new rental households has increased by 770,000 annually since 2004, the center’s report said, making 2004-14 the strongest 10-year stretch of rental growth since the late 1980s.

Many people living in rentals were once owners; they lost their homes to foreclosure and now have such damaged credit reports that they find it nearly impossible to qualify for a mortgage. Others are trapped because lenders have significantly tightened credit standards after the abuses of the boom era.

And while the federal government has created programs to encourage lenders to offer mortgages requiring only a small down payment, the efforts are so nascent that officials won’t say how many people have taken advantage of them.

Apart from the hangover from the housing collapse and the worst economic downturn since the 1930s, the nation’s changing demographics are also causing a major shift in housing trends. For instance, a majority of new households expected to be formed in coming years will consist of people with a minority background. Historically such Americans have had lower incomes and fewer assets and were less able to buy homes, according to the Urban Institute.

At the same time, millions of young adults who normally would be first-time home buyers are still struggling to find decent jobs; many are also putting off marriage and having children, a trigger for home buying. They are also more likely than previous generations to be saddled with heavy student loan payments that hurt their ability to save for a down payment.

But it is not just younger people who are having trouble owning a home. According to the Joint Center’s report, that rate dropped the fastest for people in their late 30s to early 50s. These people were in their prime home-buying years right before the recession; when housing prices plummeted, they were left with little or no equity.

“People in their 40s and 50s were very hard hit by the housing crisis,” said Chris Herbert, managing director of Harvard’s housing center. “They’ve been a bit of a forgotten generation.”

Some economists see signs of a turnaround, with reluctant renters like Mr. McDowell starting to find ways to enter the mortgage market, where interest rates are still at bargain levels. The economists predict home buying will continue to rise as long as the economy keeps growing and unemployment falls further, prodding employers to raise wages faster than inflation.

But in the meantime, the flood of renters has reduced the national vacancy rate to its lowest point in nearly 20 years, according to the center’s report. And while builders are adding apartments rapidly, they are concentrating on the higher end of the market, pinching those in the middle and bottom. Last year, rents rose at a 3.2 percent rate, more than twice the pace of overall inflation.

“During the broader recovery, the jobs have been created in the same metro areas where housing is relatively scarce — Boston; San Francisco; Washington, D.C.; Seattle,” said Stan Humphries, chief economist at Zillow, a real estate website. “That’s inflamed rent appreciation.”

According to the housing center’s report, the share of renters paying more than 30 percent of their income on rent — defined as “cost burdened” — has held at near-record highs. In 2013, almost half of all renters fell into that category. The share of cost-burdened renters is growing among people with moderate incomes, those who earn from $30,000 to $75,000 a year, the report said.

The situation is particularly acute in New Jersey, where the McDowell family lives. According to an analysis of 2013 government data by Enterprise Community Partners, a nonprofit based in Columbia, Md., dedicated to creating more affordable housing, more than three out of 10 New Jersey renters spend at least half of their household income on rent and utilities, the second-highest rate in the nation, behind Florida.

Mr. McDowell is Exhibit A in the nation’s new housing schematic. The McDowells pay $800 a month for preschool tuition for their 5-year-old daughter, Erin. A big chunk of Mr. McDowell’s paychecks go to repay student loans, making his $70,000 annual salary seem much smaller.

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Johnnie McDowell in his apartment with his daughter, Erin. Saving for a down payment on a home has been difficult.CreditFred R. Conrad for The New York Times

Mr. McDowell and his wife have long commutes. After being stranded when his car broke down, he bought two new vehicles last year to ensure they both can get to work. Payments total about $750 a month.

The son of a single mother, Mr. McDowell has no family to tap for a financial gift or even a loan. He could move to a less expensive town where homes are cheaper, but he wants to stay in pricier Westfield for its good schools.

Mr. McDowell moved around a lot when he was growing up, and so he craves the opposite for his family: a place that he can be assured his children will call home for years. That fixer-upper on Livingston Street, listed for $200,000, could be the one. “It teases me,” he said.

On a recent warm evening, Mr. McDowell stood outside the broken white picket fence that lined the home, with Erin bouncing down the sidewalk.

“I would rip up all of this,” he said, plotting how he’d clean up the yard so the children and their shih tzu, Cleo, could safely play. “I have dreams. My wife and I have dreams.”